No Plan for Devaluation of the Naira, Says CBN – TheNigerialawyer

The Central Bank of Nigeria (CBN) has ruled out the possibility
of devaluing the naira next year, expressing optimism that crude
oil price will remain stable in the new year.

The Director, Corporate Communications, CBN, Mr. Isaac
Okoroafor, said this in a telephone interview with THISDAY while
reacting to some analysts’ predictions that the central bank might
devalue the naira before the end of the first quarter 2020.

The benchmark Brent crude closed at $66.60 a barrel at the
weekend.

Nigeria’s external reserves dropped to $38.776 billion as of
last Thursday, representing a decline by $4.3 billion or 10 per
cent in 2019, compared with the $43.076 billion it was at the
beginning of the year.

Owing to this, some analysts had predicted that the falling
reserves might force the CBN’s hands to depreciate the naira.

But allaying fears of devaluation, the central bank’s spokesman
said: “It is unfortunate that people are talking about devaluation
at this time when the central bank governor came out only last
month, at the annual bankers’ dinner, to say the CBN would continue
to sustain the stability in the forex market.

“We are aware of the speculation in some places quoting the
governor as saying he would depreciate the naira if the external
reserves drop below $30 billion. That was not what the governor
said.

“That statement was actually made in July, when the governor was
holding some private discussions with some foreign investors in
London. And when he was asked a question regarding the threshold at
which he would be worried, he gave two conditions.

“He said if crude price dropped below $45 per barrel and at the
same time the external reserves dropped below $30 billion. But,
unfortunately, those who were bent on speculating chose the aspect
of if the reserves drop below $30 billion.

“You know that crude oil price has remained firm above $60 per
barrel. As we speak, it is above $65 per barrel. The CBN is
optimistic that the Organisation of Petroleum Exporting Companies
(OPEC) and heads of government are working very hard to make sure
that oil prices do not drop below $60 per barrel.

“If that trend continues and crude price remains firm as it is
presently, then I do not see any reason somebody would be talking
about devaluing the currency. So, for that reason, there is no need
for anybody to be worried about a naira depreciation.

“Businesses, investors and households should not be worried
about the naira depreciating.”

However, the CBN Governor, Mr. Godwin Emefiele, in his personal
statement at the last Monetary Policy Committee (MPC) meeting,
posted on the central bank’s website at the weekend, reiterated the
need for policymakers to intensify, refocus and become more
aggressive with efforts to structurally rebalance and diversify the
economy from oil.

According to him, there is the need to strengthen the forex
reserves on the fortitude of the non-oil sector.

“In this regard, the success of the 43 items in buoying
productivity is fervently acknowledged. I emphasise once more the
need to maintain our unconventional approach to tackling
macroeconomic challenges.

“We have seen a pickup in real growth rate up to 2019 third
quarter, traceable to improved credits and higher loan-to-deposit
ratio,” he added.

This, according to him, is even more pleasing as non-performing
loans continued to decline even with higher credits, due primarily
to regulatory mechanisms.

“We also observed marginal uptick in inflation rate due to
supply hitches heralded by border closures. Given the price
stability mandate of the CBN, it is foremost to keep inflationary
concerns within sight while remaining mindful of the need to
correct the output gap.

“Hence, on a balance of evidence and probability, it may be more
judicious to hold all parameters at this time. Given the subsisting
global risks, any policy shock now may be impetuous and
destabilising, especially as the year-end festivity spending could
impact on domestic prices, output and the exchange rate.

“The consequences of border closure on supply and economic
trajectory also need to be heeded. At this time, I am also
cognisant of the budgetary cycle and fiscal dynamics and their real
effects on our impulse-response function and outcomes.

“I am wholly confident that the current level of real policy
rate is appropriate to balance the objectives of exchange rate
stability, price stability and output stabilisation without
introducing disruptive policy shocks,” he stated.